Today I am looking at global banking behemoth Banco Santander‘s (LSE: BNC) (NYSE: SAN.US) earnings forecast for the coming year.
Ready to rise on LatAm recovery
In my opinion, Santander is a great way to play the emerging economies of South America next year and beyond. The bank has substantial exposure to the continent’s economic heavyweights, and sources 24%, 11% and 6% of group profits from Brazil, Mexico and Chile respectively.
The effect of economic rebalancing has dented Santander’s performance here in recent times, although happily the bank continues to grab market share in these countries to offset these problems — October’s interims revealed Brazilian loans and deposits advance 7% and 8% during January-September, and 9% apiece in Mexico.
And signs of improving financial conditions here bode well for 2014. Indeed, the IMF expects GDP growth in Latin America and the Caribbean to clock in at 3.1% in 2014, recovering from a 20 basis point drop to 2.7% in 2013. With rising consumption and investment expected to boost Brazil in 2014, and Mexico rising on a recovering US economy, the near-term conditions look promising.
Santander also continues to hike its exposure to potential-rich emerging regions outside Latin America, and this month agreed to take HSBC Holdings’ 8% stake in Bank of Shanghai — as well as create a co-operation agreement with the Chinese bank — for €470m. The bank’s drive to capture the fruits of a rising populace and affluence levels in developing regions bodes well for long-term growth.
In the meantime, potential investors can also be heartened by Santander’s healthy balance sheet as it puts the fallout, including substantial write-offs, associated with the 2008/2009 banking crisis behind it. The firm also carries a strong core capital ratio, which stood at 11.56% as of the end of September, up 1.23% from the corresponding point in 2012 and putting it in great shape to meet new regulatory requirements which come into play on 1 January.
City brokers anticipate Santander to bluster back into growth in 2013 after five years of heavy double-digit earnings declines, with an 84% improvement in earnings per share, to 42.3 euro cents, anticipated. And the bank is expected to follow this barnstorming performance with an additional 23% advance in 2014 to 52 cents.
Santander’s stunning expansion potential creates a price to earnings to growth (PEG) readout of 0.5 for 2014, below the widely-considered value watermark of 1. These forecasts also leave the business trading on a P/E multiple of 11.6 for next year, just above the value benchmark of 10 and comfortably beating a prospective mean of 16.5 for the entire banking space.
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In addition to a sterling earnings outlook, Santander also offers investors the chance to enjoy sector-smashing dividend income in 2014. Analysts expect the bank to cough up a payout of 49.7 euro cents in 2014 which, if realised, creates a yield of 8.2%. This blasts a forward average of 3.7% for its industry rivals into smithereens.